Tuesday, 16 December 2008

30% bigger than annual government spending on health and education combined

See that big orange bubble, second from the left on the top row ? The one labeled 'Bank Debt Guarantee - £250bn'?

Well it's not a guarantee anymore: Peston says it's now a more or less direct subsidy, at least for the next five years. & it's 30% bigger than annual government spending on health and education combined. Mason said some time ago this was the Minsky solution to a Minsky crisis - the moment when banks became utilities.

But before anyone on the Left starts dancing in the aisles let's remember that the banks - and therefore all of us - have a really tricky task ahead. A failed generalised financial business model - a failed style of political economy if you like - has to be unraveled. The banks are hand in glove with the hedge funds and need to retreat from these speculative positions ; the pensions industry depends on these speculative profits. & the banks aren't going to start lending like a drunken sailor again to the mortgage market or small businesses unless they have some substitute for this easy speculative money. In any event, nations with large current account surpluses, whose money the banks and hedge funds have been playing with in the final analysis, may want to take their ball away and go for some expansion of domestic demand. I've argued this won't always be possible and will never be easy - but there is certainly some scope, and the greater the scope for such domestic investment by China and the rest of the countries in surplus the less money for the City and NYSE to play with.

In short: in Britian, our homes and our pensions are intimately tied to a model of political economy whereby our financial sector 'churns' and speculatively exploits other countries' savings. The model can't be put back together again anytime soon. It's broken. We're going to have to work longer and harder for less pay.

On the upside, though, the question of 'what the banks should do' is now as legitimate a political question as how to run the NHS. It's not a private matter suitably addressed only by pointy headed 'experts'. Hitherto the only 'political' question about the economy was who could run it best- the actual mechanisms of the economy itself was assumed to be outwith political debate. The content and structure of the economy are now political again.

2 comments:

"Peston says it's now a more or less direct subsidy, at least for the next five years."

Where does he say that, exactly? He says the government is replacing the wholesale markets, but not that it's lending the money at a lower rate than it's paying (which would surely be required for it to be a subsidy...)

I think a subsidy is something which allows the person receiving it to get hold of a good or service cheaper than they would on the open market. Peston's precise words were,"...the Treasury has also significantly reduced the fee payable to it for having taxpayers in effect lend money to the banks.

It has done this by excluding from the calculation of the risk premium payable to taxpayers "